Ex-Banking Department employee: Law firm had no special relationship with agency

Ex-Banking Department employee: Law firm had no special relationship with agency

Published: January 4, 2011

A former New Hampshire Banking Department attorney denies that she told a fellow agency employee that former Banking Commissioner Peter Hildreth gave special treatment to powerful banking industry lobbyist Chris Gallagher.Andrea Shaw -- who recommended that Financial Resources Mortgage Inc.'s license be pulled four years before the firm collapsed -- was responding to a newly disclosed memo that has emerged in the attorney general's investigation of the multimillion-dollar Lakes Region-based Ponzi scheme. The memo was obtained by FRM victim Al McIlvene in response to a Freedom of Information Act request. A copy was given to NHBR.According to the memo, Shaw’s successor, James Shepard – who recommended that the enforcement action be dropped in 2007 – said that he had been warned by Shaw before she left the agency that “there was a special relationship between Chris Gallagher and the Banking Commissioner and that he had to be careful as to what he did with clients of Gallagher, Callahan & Gartrell.”The memo, written by Assistant Attorney General J. Christopher Marshal and Associate Attorney General Richard Head, is dated April 27, 2010, and was based on an interview with Shepard the previous day.Shaw now works as an attorney for a bank near Portland, Maine. She has declined to testify in numerous probes into the FRM matter, though the Bureau of Securities Regulation said it is working with the Attorney General’s Office in Maine to compel her to testify, but has thus far been unable to serve her with a subpoena.. Both Head and Shepard are expected to testify on Friday. “I don’t recall that conversation,” Shaw, told NHBR when reached at her Maine home, “but my recollection with Peter is that there were no specific lawyers who got special treatment, and I thought he dealt with everybody fairly.”Shaw declined any further comment.Gallagher, who now is based in Washington D.C., said he was not involved in the FRM matter and had not followed it, declined comment and referred all questions to his partner, Michael R. Callahan, who did not get back to NHBR by deadline.Hildreth, who resigned last month during Executive Council hearings into his removal over the FRM matter, also declined comment, referring questions to his attorney, David Nixon, who was away on vacation.But Kirk Simoneau, Nixon’s law partner, declared that “there was no special relationship that would have influenced how Banking Commissioner Hildreth and the Banking Department would have interacted with the Gallagher firm or any other law firm.”Shepard, now a hearings officer at the Department of Safety, could not be reached for comment.FRM had been represented by the Gallagher firm.After the Securities Bureau went after the company for allegedly selling unregistered securities at the beginning of the decade, the law firm objected, claiming that regulation of FRM came under the sole jurisdiction of the Banking Department.FRM subsequently entered into a regulatory no man’s land, escaping the eyes of the Securities Bureau, the Banking Department and the AG’s Consumer Protection Bureau, all of which claimed that the company was mainly operating outside its jurisdiction.The questions over jurisdiction resulted partly from changes in the state consumer protection law that gave the Banking Department exclusive jurisdiction over entities they regulate. Changes in the law were supported in the Legislature by the Gallagher firm.But at the end of 2005, the Banking Department issued to FRM a show cause order to explain why its license not be revoked because of failure to safeguard consumer information.That action was never consummated, as Shaw left the department around the time Shepard joined the agency in the fall of 2006, according to the memo.The memo cites a “notation in the file” to show that the staff recommended closing the enforcement action in February 2007 because the licensee had fixed the violations. The timing of this was “puzzling,” according to the memo, because there was express direction from the director of consumer banking to take action, there were pending actions based on 2004 and 2006 exams of FRM, and there were critical newspaper articles about FRM, yet the 2007 exam had not taken place yet.“Mr. Shepard said that Ms. [Susan] Leduc [of the Gallagher law firm] was proactive in calling him and describing the problems of her client,” the memo says, after explaining the puzzling timing.Earlier, the memo says that Shepard "welcomed" Leduc's "involvement because he had dealt with her before, respected her and thought that she would be helpful in addressing the FRM issues.”The memo then discusses Shepard’s discussion of the special relationship between Gallagher and Hildreth that was allegedly outlined by Shaw.“He did not have the details as to what she [Shaw] based her comments on but his impression was that something had happened in a case involving the Gallagher office where Andrea Shaw was not satisfied with the outcome. Her warning to him was to be careful as to how he handled clients of the Gallagher office," according to the memo.The memo goes on to say that Shepard said that “it was not unusual for the commissioner to inquire about cases but he tended to be more focused in his inquiries on cases that involved the Gallagher office.”At times, according to the memo, Shepard said that Chris Gallagher would talk to him directly (though not necessarily about FRM) and his dealings were “aboveboard.” In the summer of 2008, Shepard left the Banking Department. -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

This article appears in the December 31 2011 issue of New Hampshire Business Review